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World Bank Approves New Financing for Priority Reforms in Indonesia

improved public financial management and greater spending on infrastructure, helping to lay the foundation for strong and inclusive growth in Indonesia.

Of the two new loans, the Seventh Development Policy Loan (DPL 7), worth $600 million, deepens the reform efforts supported by previous DPLs in reducing uncertainties for investors to invest; strengthening the management of public finances; and enhancing poverty alleviation and service delivery.

“Over the last few years, consumer spending and a thriving private sector have helped fuel Indonesia’s economic growth, while ambitious reforms at different levels have helped lay the foundation for strong and inclusive growth in the medium term,” said World Bank Country Director for Indonesia, Stefan Koeberle. “These positive trends have prompted international investors to see the tremendous potential Indonesia holds, and thus it becomes important for Indonesia to keep moving forward with its structural and institutional reforms”.

Through the other new loan, the fourth Infrastructure Development Policy Loan (IDPL4) worth $200 million, the World Bank is supporting Indonesia’s effort to increase the level and efficiency of government spending in the infrastructure sector – especially in the provision of electricity, roads, water and sanitation services.

The IDPL series has also supported improved levels of investment in infrastructure by the private sector through the development of the Public-Private Partnership framework and improved governance frameworks for land acquisition, environmental protection and public procurement.

“Infrastructure continues to be one of the main constraints to investment in Indonesia. In that sense, the Government’s significant increase in infrastructure spending for next year’s budget is a positive development. There are also significant reforms being designed to be able to attract more private sector investment to the sector, which will be needed in the long run,” said Mr. Koeberle.

By the end of 2010, IDPL 4 is expected to help:

 

  • Increase national and sub-national spending on infrastructure by more than 50 and 35 percent respectively, since 2006.
  • Increase the proportion of electricity subsidies allocated to the lowest income consumers
  • Prepare competitive and transparent tenders for public-private partnership transactions
  • Improve public spending and lower corruption risk through enhanced transparency and accountability.

FACT SHEET

Since 2004, the DPL series has contributed to the following key outcomes:

  • Increased investment flows into Indonesia: investment to GDP ratio rising from 21.4% to 23.4%, and FDI inflows from US$1.9 billion to US$6.8 billion in the first nine months of 2010.
  • Improvement in Indonesia’s overall investment climate: in the 2011 Doing Business Survey (http://www.doingbusiness.org/), Indonesia ranks 122 out of 183 countries, with the time required to start a new business reduced from 168 to 60 days, and number of procedures reduced from 12 to 9.
  • Introduction of various regulatory reforms to strengthen the tax administration: includes issuance of implementing regulations that clarify administrative procedures for taxpayers.
  • Improved results-orientation of the budget process: the RPJMN 2010-14 features performance-based budgeting and medium-term expenditure framework, with measurable results and targets.
  • Establishment of the Treasury Single Account: helped consolidate and improve cash management of public finances.
  • Improved government accounting practices: through a strengthening of the regulatory framework aimed at enhancing accountability and quality of line ministries’ financial statements.
  • Establishment of the National Public Procurement Office: responsible for sustainable, integrated, focused and coordinated planning and development of strategies/ policies/regulations associated with the procurement of goods/works/services using public funds.
  • Improved targeting of the poor: through the updating of household registry data, adoption of a better system to identify poor households and piloting of poverty targeting experiments.
  • Scaling up of PNPM-Mandiri: By end 2009, the Government’s flagship anti-poverty program reached all 6,400 sub-districts (kecamatan), and central Government funding for entire program was increased to Rp 10.3 trillion.

Since 2006, the IDPL series has contributed to the following key outcomes:

  • Nominal doubling of capital spending on infrastructure by national ministries over the Rp 25 trillion baseline in 2006
  • Nominal increase in sub-national allocation to infrastructure by 35 percent
  • Increase in proportion of electricity subsidies from 44 percent to 53 percent, allocated to the lowest income group of consumers
  • Improvement in the quality of national roads from 82 to 86 percent in good or fair condition and 25 percent increase in road-lane km.
  • Increase in water utility investment worth US$ 296 million since 2007.
  • PPP transaction tendered in compliance with Perpres 67 which attracted more than 3 responsive bids.
  • Indonesian government agreement to terminate all toll-road concession contracts signed before August 17, 2007.
  • 46 percent of works contracts awarded within 45 days of bid opening.
  • Production of effective internal audit reports by the Ministry of Public Works Inspector General.